Day of reckoning is near

About two years ago, I gave up using credit cards. I’d had enough of a certain credit card company charging you a “liquidated damages” fee if you were late in paying – can you imagine the nerve of charging liquidated damages? I sent them a heated letter reminding them that only lawyers used that phrase and couldn’t they be more customer-friendly in their language? I received some automated twaffle in reply and promptly ripped said credit card to bits during a major hissy fit. Then I danced around the shredded up plastic bits! The mere mention of this credit card company’s name tends to send me into a melt down.

But aside from being in a rage about this, I was thinking even two years ago that we were all having a massive party on credit cards and that sooner or later the party would be over. It’s very easy to whip out the plastic and utter those heady words “charge it”. We tend to think (or at least I did) that it’s someone else’s money or that yeah, can’t really afford it now but I’ll find a way to pay it back. When I first signed up for a credit card in the 1980s my father wasn’t amused. He never had one. Came from the days when credit just wasn’t around and you worked hard to pay for what you wanted. Lay-buys were in. Instant gratification wasn’t known.

So…two years ago, I decided to chop up the plastic and follow the mantra of “if you haven’t got the cash, tough, you can’t buy it”. I don’t have a credit card debt. When I receive those annoying letters from banks saying “congratulations you can have a $25,000 credit limit” (and I didn’t even apply for it), I rip the letters to shreds.

So it’s not really surprising to read that following the subprime mortgage fiasco, credit card debt is the next bubble to explode all over us. What really freaked me out is reading that a credit card meltdown could bring down the world’s financial system. Hello….depression? My grandparents always used to tell me stories of their life during the Great Depression – eating bread with dripping, having a swagman or two visit them asking if they had any work. The spectre of a Depression has always haunted me because of my grandparents’ nightmarish bedtime stories!

Obama has been warning about the siren call of credit cards for some time and introduced the Credit Card Safety Star Act of 2007. Due to subprime losses, in the US, people are using their high-interest credit cards to pay part of their mortgage repayments. Total Australian credit card debt grew in February 2008 from $39.5 billion to $43.25 billion and the average interest rate jumped from 17.6% to 19.4%. So apparently Australians are paying AU$500 million in interest on all the consumer goods we’ve bought.

Now, I’m no economist but seems to me we’re on the brink of a mega-collapse somewhere in the not too distant future. If I were an economist, I could wager a few bets as to when a world wide credit-card collapse might happen and be well-prepared to tough it out. After the dot.com collapse, we seem to have been encouraged to think of houses as giant ATM machines, extracting money from home equity and expecting the house to rake in the profits in a housing boom. But now we’re seeing a contraction of the property/housing market.

The US has been partying on China’s money for ages and I don’t think the US Government has been using that money to provide better health care. Nope. I reckon they’ve been using it to finance the Iraq War. And if the predictions that China’s economic growth might slow are true, then the US is in for a bit of a surprise.

I’ve been thinking too how countries like the US and Australia have become so service-oriented that we are lacking expertise in manufacturing of quality goods because we’ve outsourced to China. Australia could once rely I guess on tourism as a service industry but now that airlines are trying to pass on to us the price of rising fuel costs, our tourist industry is beginning to do it tough and the Japanese are deserting us.

With so much credit swirling round and people mortgaged and debt-laden up to the ears, we are bound to increasingly hear things like this – the largest municipal county in Alabama US, Jefferson County, is considering filing for Chapter 9 bankruptcy . The county is in a US$3.2 billion mess created by the credit crisis (and some corruption along the way it seems). So when a county (or State) goes belly up, its citizens suffer: layoffs occur, pension payments are threatened, libraries shut doors, infrastructure decays and so on.

So I am seriously thinking of how to prepare for the upcoming doom and gloom and how to survive it. What follows is no financial or legal advice, it’s just what I am going to be focusing on to prepare for a bleak future:

1. Own everything you can – home and car. Make every effort to pay out that mortgage or reduce it as best you can. Don’t own some flash car just because you want to look cool.

2. Pay off and cut up those credit cards – when you’ve paid them off, cut up the plastic and dance around all the bits and pieces. Trust me: it’s SO satisfying. Don’t be seduced by easy money because it will eventually bite you in the butt.

3. Avoid THE BRANDS. You can look good wearing recycled stuff. Going to St Vinnies doesn’t mean you’re down or out. I trotted out my recycled winter coat last week (from the 1940s and oh so cheap, but oh so warm and well-made). I’ve never had so many compliments! People actually want to touch and pat it (no it’s not fur, it’s luscious velvet). Don’t waste your money on Brand-name stuff. I’m even paring down my lipgloss collection!

4. Start making your own bread and buy in bulk. We make bread from spelt (which we buy in bulk) and we make up our own muesli and keep it in a huge container in the refrigerator. We grow whatever herbs we can to spice up our food. We buy lentils and rice in bulk.

5. Check out the supermarket specials. I haven’t used the Government’s new website, GroceryChoice yet, which helps you to compare supermarket items but plan to. But I only shop every other week (to avoid any temptations) and I compare prices. Use any coupons you can, like fuel discount coupons.

6. Live off-the-grid as best you can. Invest in solar power. We have installed photovoltaics and a water tank. We are currently looking for land that will have its own water source and where we can grow vegetables and fruit.

7. Follow my father’s advice: if you can’t afford it, tough, you can’t have it. Save at least 10% of your salary. Don’t put your money in one bank (I think this is a hangover from the Depression and the fear that a bank would collapse, but hey, I’m following this advice!).

8. Look after your health. Good health really is your greatest asset. When the collapse comes, don’t for one moment think the Government will be there to help you in your hour of need when it comes to health. They’ll be bankrupt. So exercise and eat well (as best you can when food is toxic with preservatives and colourings). Check out your local area to see if there’s an organic fruit and vege shop. Don’t smoke, don’t drink (I’m sure by this stage you think I’m some Bible thumping goose but really, be honest, tobacco and alcohol can be addictive substances that impact on health). Stay off the wacky tobaccy and other substances that cause you to think you’re Jesus! You’ll need to have your wits about you to cope with the coming dramas.

9. Learn how to make and repair things. I noticed in Portugal and Italy how they have a lot of shops that specialise in things like shoe repair, tailoring and so on. They seem to recycle and repair things more than we do in Australia. Now, if my husband’s socks sprout a hole, I’m darning them rather than tossing out. I’m wearing clothes from three or four years ago rather than rushing out and buying the latest trend look. If I want a new pair of earrings or necklace, I make it. I’ve trotted out some of my mother’s stuff to wear.

10. There should be a tenth item to make up the obligatory Top 10 list – but can’t think of anything! So if you can add to this list, leave a comment.